Fair Value

9 Months Ended

Sep. 30, 2024

Fair Value Disclosures [Abstract]

Fair Value

Note 7— Fair Value

The Company’s consolidated financial statements include assets and liabilities that are measured at or based on their fair values. Measurement of assets and liabilities at or based on fair value may be on a recurring or nonrecurring basis depending on the accounting principles applicable to the specific asset or liability and whether the Company has elected to carry the item at its fair value as discussed in the following paragraphs.

The Company groups its assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the observability of the inputs used to determine fair value. These levels are:

•Level 1—Quoted prices in active markets for identical assets or liabilities.

•Level 2—Prices determined or determinable using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing an asset or liability and are developed based on market data obtained from sources independent of the Company.

•Level 3—Prices determined using significant unobservable inputs. In situations where significant observable inputs are unavailable, unobservable inputs may be used. Unobservable inputs reflect the Company’s own judgments about the factors that market participants use in pricing an asset or liability, and are based on the best information available in the circumstances.

As a result of the difficulty in observing certain significant valuation inputs affecting “Level 3” fair value assets and liabilities, the Company is required to make judgments regarding these items’ fair values. Different persons in possession of the same facts may reasonably arrive at different conclusions as to the inputs to be applied in valuing these assets and liabilities and their fair values. Such differences may result in significantly different fair value measurements. Likewise, due to the general illiquidity of some of these assets and liabilities, subsequent transactions may be at values significantly different from those reported.

The Company reclassifies its assets and liabilities between levels of the fair value hierarchy when the inputs required to establish fair value at a level of the fair value hierarchy are no longer readily available, requiring the use of lower-level inputs, or when the inputs required to establish fair value at a higher level of the hierarchy become available.

Fair Value Accounting Elections

The Company identified all of PMT’s non-cash financial assets and MSRs to be accounted for at fair value. The Company has elected to account for these assets at fair value so such changes in fair value will be reflected in income as they occur and more timely reflect the results of the Company’s performance.

The Company has also identified its Asset-backed financings at fair value and Interest-only security payable at fair value to be accounted for at fair value to reflect the generally offsetting changes in fair value of these borrowings to changes in fair value of the assets at fair value collateralizing these financings. For other borrowings, the Company has determined that historical cost accounting is more appropriate because under historical cost accounting debt issuance costs are amortized over the term of the debt facility, thereby matching the debt issuance costs to the periods benefiting from the availability of the debt.

Financial Statement Items Measured at Fair Value on a Recurring Basis

Following is a summary of financial statement items that are measured at fair value on a recurring basis:

	September 30, 2024
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets:
Short-term investments	$	102,787	$	—	$	—	$	102,787
Mortgage-backed securities at fair value		—		4,101,126		81,256		4,182,382
Loans acquired for sale at fair value		—		1,659,727		6,069		1,665,796
Loans at fair value		—		1,427,575		1,950		1,429,525
Derivative assets:
Call options on interest rate futures purchase contracts		12,844		—		—		12,844
Put options on interest rate futures purchase contracts		1,953		—		—		1,953
Forward purchase contracts		—		635		—		635
Forward sale contracts		—		11,997		—		11,997
MBS put options		—		1,508		—		1,508
CRT derivatives		—		—		29,690		29,690
Interest rate lock commitments		—		—		7,476		7,476
Total derivative assets before netting		14,797		14,140		37,166		66,103
Netting		—		—		—		15,741
Total derivative assets after netting		14,797		14,140		37,166		81,844
Mortgage servicing rights at fair value		—		—		3,809,047		3,809,047
	$	117,584	$	7,202,568	$	3,935,488	$	11,271,381
Liabilities:
Asset-backed financings of the variable interest entities    at fair value	$	—	$	1,334,797	$	—	$	1,334,797
Interest-only security payable at fair value		—		—		35,098		35,098
Derivative and credit risk transfer strip liabilities:
Forward purchase contracts		—		7,452		—		7,452
Forward sales contracts		—		11,530		—		11,530
Interest rate lock commitments		—		—		1,574		1,574
Total derivative liabilities before netting		—		18,982		1,574		20,556
Netting		—		—		—		(17,880	)
Total derivative liabilities after netting		—		18,982		1,574		2,676
Credit risk transfer strips		—		—		13,475		13,475
Total derivative and credit risk transfer strip liabilities		—		18,982		15,049		16,151
	$	—	$	1,353,779	$	50,147	$	1,386,046

	December 31, 2023
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets:
Short-term investments	$	128,338	$	—	$	—	$	128,338
Mortgage-backed securities at fair value		—		4,742,061		94,231		4,836,292
Loans acquired for sale at fair value		—		662,700		6,318		669,018
Loans at fair value		—		1,431,689		2,131		1,433,820
Derivative assets:
Call options on interest rate futures purchase contracts		41,712		—		—		41,712
Put options on interest rate futures purchase contracts		4,324		—		—		4,324
Forward purchase contracts		—		15,905		—		15,905
Forward sale contracts		—		671		—		671
MBS call options		—		3,218		—		3,218
MBS put options		—		5		—		5
CRT derivatives		—		—		16,160		16,160
Interest rate lock commitments		—		—		7,596		7,596
Total derivative assets before netting		46,036		19,799		23,756		89,591
Netting		—		—		—		88,393
Total derivative assets after netting		46,036		19,799		23,756		177,984
Mortgage servicing rights at fair value		—		—		3,919,107		3,919,107
	$	174,374	$	6,856,249	$	4,045,543	$	11,164,559
Liabilities:
Asset-backed financings of the variable interest entities    at fair value	$	—	$	1,336,731	$	—	$	1,336,731
Interest-only security payable at fair value		—		—		32,667		32,667
Derivative liabilities and credit risk transfer strips:
Call options on interest rate futures purchase contracts		2,005		—		—		2,005
Call options on interest rate futures sell contracts		1,328		—		—		1,328
Forward purchase contracts		—		490		—		490
Forward sales contracts		—		50,363		—		50,363
Interest rate lock commitments		—		—		64		64
Total derivative liabilities before netting		3,333		50,853		64		54,250
Netting		—		—		—		(49,561	)
Total derivative liabilities after netting		3,333		50,853		64		4,689
Credit risk transfer strips		—		—		46,692		46,692
Total derivative and credit risk transfer strip    liabilities		3,333		50,853		46,756		51,381
	$	3,333	$	1,387,584	$	79,423	$	1,420,779

The following is a summary of changes in items measured at fair value on a recurring basis using Level 3 inputs that are significant to the estimation of the fair values of the assets and liabilities at either the beginning or end of the periods presented:

	Quarter ended September 30, 2024
Assets (1)	Interest-only stripped mortgage-backed securities			Loans acquired for sale			Loans at fair value			CRT derivatives			Interest rate lock commitments			CRT strips			Mortgage servicing rights			Total
	(in thousands)
Balance, June 30, 2024	$	87,841		$	7,994		$	1,998		$	24,305		$	1,552		$	(16,974	)	$	3,941,861		$	4,048,577
Purchases (purchase adjustments) and    issuances		—			(156	)		—			—			18,971			—			—			18,815
Repayments and sales		(40,487	)		(1,728	)		(38	)		(3,350	)		—			(10,990	)		—			(56,593	)
Accrual of unearned discount		2,264			—			—			—			—			—			—			2,264
Amounts received pursuant to sales   of loans		—			—			—			—			—			—			87,588			87,588
Changes in fair value included in income arising from:
Changes in instrument -    specific credit risk		—			—			—			—			—			—			—			—
Other factors		(3,971	)		(41	)		(10	)		8,735			27,776			14,489			(184,918	)		(137,940	)
		(3,971	)		(41	)		(10	)		8,735			27,776			14,489			(184,918	)		(137,940	)
Exchange of mortgage servicing spread     for interest-only stripped mortgage    -backed securities		35,609			—			—			—			—			—			(35,609	)		—
Transfers of:
Interest rate lock commitments to loans    acquired for sale (2)		—			—			—			—			(42,397	)		—			—			(42,397	)
Mortgage servicing rights relating to    delinquent loans to Agency		—			—			—			—			—			—			125			125
Balance, September 30, 2024	$	81,256		$	6,069		$	1,950		$	29,690		$	5,902		$	(13,475	)	$	3,809,047		$	3,920,439
Changes in fair value recognized during the quarter relating to assets still held at September 30, 2024	$	(3,971	)	$	(9	)	$	(19	)	$	5,460		$	5,902		$	3,499		$	(180,885	)	$	(170,023	)

(1)For the purpose of this table, CRT derivative, interest rate lock commitment (“IRLC”), and CRT strip asset and liability positions are shown net.

(2)The Company had transfers among the fair value levels arising from transfers of IRLCs to loans acquired for sale at fair value upon purchase of the respective loans.

Liabilities	Quarter ended September 30, 2024
	(in thousands)
Interest-only security payable:
Balance, June 30, 2024	$	32,708
Changes in fair value included in income arising from:
Changes in instrument - specific credit risk		—
Other factors		2,390
		2,390
Balance, September 30, 2024	$	35,098
Changes in fair value recognized during the quarter relating to liability outstanding at September 30, 2024	$	2,390

	Quarter ended September 30, 2023
Assets (1)	Interest-only stripped mortgage-backed securities			Loans acquired for sale			Loans at fair value			CRT derivatives			Interest rate lock commitments			CRT strips			Mortgage servicing rights			Total
	(in thousands)
Balance, June 30, 2023	$	—		$	6,630		$	2,665		$	(4,394	)	$	(1,298	)	$	(78,569	)	$	3,977,938		$	3,902,972
Purchases and issuances		—			—			—			—			6,618			—			16,263			22,881
Repayments and sales		—			(1,383	)		(510	)		(4,028	)		—			(11,241	)		—			(17,162	)
Amounts received pursuant to sales   of loans		—			(496	)		—			—			—			—			58,560			58,064
Changes in fair value included in income arising from:
Changes in instrument -    specific credit risk		—			—			—			—			—			—			—			—
Other factors		(14	)		131			(58	)		13,164			(16,255	)		21,218			160,926			179,112
		(14	)		131			(58	)		13,164			(16,255	)		21,218			160,926			179,112
Exchange of mortgage servicing spread     for interest-only stripped mortgage    -backed securities		103,547			—			—			—			—			—			(105,096	)		(1,549	)
Transfers of:
Interest rate lock commitments    to loans acquired for sale (2)		—			—			—			—			7,587			—			—			7,587
Mortgage servicing rights relating to    delinquent loans to Agency		—			—			—			—			—			—			70			70
Balance, September 30, 2023	$	103,533		$	4,882		$	2,097		$	4,742		$	(3,348	)	$	(68,592	)	$	4,108,661		$	4,151,975
Changes in fair value recognized during the quarter relating to assets still held at September 30, 2023	$	(14	)	$	(104	)	$	(74	)	$	9,113		$	(3,348	)	$	9,977		$	160,926		$	176,476

(1)For the purpose of this table, CRT derivative, IRLC, and CRT strip asset and liability positions are shown net.

(2)The Company had transfers among the fair value levels arising from transfers of IRLCs to loans acquired for sale at fair value upon purchase of the respective loans.

Liabilities	Quarter ended September 30, 2023
	(in thousands)
Interest-only security payable:
Balance, June 30, 2023	$	24,060
Changes in fair value included in results of operations arising from:
Changes in instrument - specific credit risk		—
Other factors		4,228
		4,228
Balance, September 30, 2023	$	28,288
Changes in fair value recognized during the quarter relating to liability outstanding at September 30, 2023	$	4,228

	Nine months ended September 30, 2024
Assets (1)	Interest-only stripped mortgage-backed securities			Loans acquired for sale			Loans at fair value			CRT derivatives			Interest rate lock commitments			CRT strips			Mortgage servicing rights			Total
	(in thousands)
Balance, December 31, 2023	$	94,231		$	6,318		$	2,131		$	16,160		$	7,532		$	(46,692	)	$	3,919,107		$	3,998,787
Purchases and issuances		—			5,341			—			—			26,842			—			29,428			61,611
Repayments and sales		(50,541	)		(5,404	)		(129	)		(10,434	)		—			(34,368	)		—			(100,876	)
Accrual of unearned discounts		6,870			—			—			—			—			—			—			6,870
Amounts received pursuant to sales    of loans		—			—			—			—			—			—			159,456			159,456
Changes in fair value included in income arising from:
Changes in instrument - specific    credit risk		—			—			—			—			—			—			—			—
Other factors		(4,913	)		(186	)		(52	)		23,964			22,774			67,585			(263,676	)		(154,504	)
		(4,913	)		(186	)		(52	)		23,964			22,774			67,585			(263,676	)		(154,504	)
Exchange of mortgage servicing spread     for interest-only stripped mortgage    -backed securities		35,609			—			—			—			—			—			(35,609	)		—
Transfers of:
Interest rate lock commitments to loans    acquired for sale (2)		—			—			—			—			(51,246	)		—			—			(51,246	)
Mortgage servicing rights relating to    delinquent loans to Agency		—			—			—			—			—			—			341			341
Balance, September 30, 2024	$	81,256		$	6,069		$	1,950		$	29,690		$	5,902		$	(13,475	)	$	3,809,047		$	3,920,439
Changes in fair value recognized during the period relating to assets still held at September 30, 2024	$	(4,913	)	$	(154	)	$	(71	)	$	13,716		$	5,902		$	33,217		$	(261,304	)	$	(213,607	)

(1)For the purpose of this table, CRT derivative, IRLC, and CRT strip asset and liability positions are shown net.

(2)The Company had transfers among the fair value levels arising from transfers of IRLCs to loans acquired for sale at fair value upon purchase of the respective loans.

Liabilities	Nine months ended September 30, 2024
	(in thousands)
Interest-only security payable:
Balance, December 31, 2023	$	32,667
Changes in fair value included in income arising from:
Changes in instrument - specific credit risk		—
Other factors		2,431
		2,431
Balance, September 30, 2024	$	35,098
Changes in fair value recognized during the period relating to liability outstanding at September 30, 2024	$	2,431

	Nine months ended September 30, 2023
Assets (1)	Interest-only stripped mortgage-backed securities			Loans acquired for sale			Loans at fair value			CRT derivatives			Interest rate lock commitments			CRT strips			Mortgage servicing rights			Total
	(in thousands)
Balance, December 31, 2022	$	—		$	10,708		$	3,457		$	(22,098	)	$	(478	)	$	(137,193	)	$	4,012,737		$	3,867,133
Purchases and issuances		—			4,262			119			—			2,687			—			16,263			23,331
Repayments and sales		—			(9,787	)		(534	)		(12,283	)		—			(35,529	)		—			(58,133	)
Amounts received pursuant to sales   of loans		—			(496	)		—			—			—			—			249,925			249,429
Changes in fair value included in income arising from:
Changes in instrument -    specific credit risk		—			—			—			—			—			—			—			—
Other factors		(14	)		195			(485	)		39,123			(3,578	)		104,130			(64,515	)		74,856
		(14	)		195			(485	)		39,123			(3,578	)		104,130			(64,515	)		74,856
Exchange of mortgage servicing    spread for interest-only stripped    mortgage-backed securities		103,547			—			—			—			—			—			(105,096	)		(1,549	)
Transfers of:																							—
Loans to REO		—			—			(460	)		—			—			—			—			(460	)
Interest rate lock commitments   to loans acquired for sale (2)		—			—			—			—			(1,979	)		—			—			(1,979	)
Mortgage servicing rights relating to    delinquent loans to Agency		—			—			—			—			—			—			(653	)		(653	)
Balance, September 30, 2023	$	103,533		$	4,882		$	2,097		$	4,742		$	(3,348	)	$	(68,592	)	$	4,108,661		$	4,151,975
Changes in fair value recognized during the period relating to assets still held at September 30, 2023	$	(14	)	$	(74	)	$	(1,011	)	$	26,619		$	(3,348	)	$	68,601		$	(64,515	)	$	26,258

(1)For the purpose of this table, CRT derivative, IRLC, and CRT strip asset and liability positions are shown net.

(2)The Company had transfers among the fair value levels arising from transfers of IRLCs to loans acquired for sale at fair value upon purchase of the respective loans.

Liabilities	Nine months ended September 30, 2023
	(in thousands)
Interest-only security payable:
Balance, December 31, 2022	$	21,925
Changes in fair value included in results of operations arising from:
Changes in instrument - specific credit risk		—
Other factors		6,363
		6,363
Balance, September 30, 2023	$	28,288
Changes in fair value recognized during the period relating to liability outstanding at September 30, 2023	$	6,363

Financial Statement Items Measured at Fair Value under the Fair Value Option

Following are the fair values and related principal amounts due upon maturity of loans accounted for under the fair value option (including loans acquired for sale, loans held in consolidated VIEs, and distressed loans):

	September 30, 2024							December 31, 2023
	Fair value		Principal amount due upon maturity		Difference			Fair value		Principal amount due upon maturity		Difference
	(in thousands)
Loans acquired for sale at fair value:
Current through 89 days delinquent	$	1,665,099	$	1,619,369	$	45,730		$	667,857	$	648,283	$	19,574
90 or more days delinquent:
Not in foreclosure		622		873		(251	)		433		617		(184	)
In foreclosure		75		96		(21	)		728		845		(117	)
		697		969		(272	)		1,161		1,462		(301	)
	$	1,665,796	$	1,620,338	$	45,458		$	669,018	$	649,745	$	19,273
Loans at fair value:
Held in consolidated VIEs:
Current through 89 days delinquent	$	1,426,511	$	1,620,842	$	(194,331	)	$	1,430,427	$	1,697,305	$	(266,878	)
90 or more days delinquent:
Not in foreclosure		891		1,122		(231	)		1,262		1,582		(320	)
In foreclosure		173		219		(46	)		—		—		—
		1,064		1,341		(277	)		1,262		1,582		(320	)
		1,427,575		1,622,183		(194,608	)		1,431,689		1,698,887		(267,198	)
Distressed:
Current through 89 days delinquent		460		634		(174	)		569		728		(159	)
90 or more days delinquent:
Not in foreclosure		1,490		4,332		(2,842	)		393		2,023		(1,630	)
In foreclosure		—		—		—			1,169		2,546		(1,377	)
		1,490		4,332		(2,842	)		1,562		4,569		(3,007	)
		1,950		4,966		(3,016	)		2,131		5,297		(3,166	)
	$	1,429,525	$	1,627,149	$	(197,624	)	$	1,433,820	$	1,704,184	$	(270,364	)

Following are the changes in fair value included in current period income by consolidated statement of income line item for financial statement items accounted for under the fair value option:

	Quarter ended September 30, 2024
	Net gains (losses) on investments and financings			Net gains on loans acquired  for sale		Net loan servicing fees			Net interest expense		Total
	(in thousands)
Assets:
Mortgage-backed securities at fair value	$	123,433		$	—	$	—		$	15,663	$	139,096
Loans acquired for sale at fair value		—			65,611		—			—		65,611
Loans at fair value		75,350			—		—			2,229		77,579
Credit risk transfer strips		14,489			—		—			—		14,489
MSRs at fair value		—			—		(184,918	)		—		(184,918	)
	$	213,272		$	65,611	$	(184,918	)	$	17,892	$	111,857
Liabilities:
Interest-only security payable at fair value	$	(2,390	)	$	—	$	—		$	—	$	(2,390	)
Asset-backed financings of VIEs at fair value		(72,922	)		—		—			1,026		(71,896	)
	$	(75,312	)	$	—	$	—		$	1,026	$	(74,286	)

	Quarter ended September 30, 2023
	Net gains (losses) on investments and financings			Net gains on loans acquired  for sale			Net loan servicing fees		Net interest expense			Total
	(in thousands)
Assets:
Mortgage-backed securities at fair value	$	(144,031	)	$	—		$	—	$	1,048		$	(142,983	)
Loans acquired for sale at fair value		—			(13,106	)		—		—			(13,106	)
Loans at fair value		(54,141	)		—			—		(5,153	)		(59,294	)
Credit risk transfer strips		21,218			—			—		—			21,218
MSRs at fair value		—			—			160,926		—			160,926
	$	(176,954	)	$	(13,106	)	$	160,926	$	(4,105	)	$	(33,239	)
Liabilities:
Interest-only security payable at fair value	$	(4,228	)	$	—		$	—	$	—		$	(4,228	)
Asset-backed financings at fair value		58,474			—			—		1,132			59,606
	$	54,246		$	—		$	—	$	1,132		$	55,378

	Nine months ended September 30, 2024
	Net gains (losses) on investments and financings			Net gains on loans acquired for sale		Net loan servicing fees			Net interest expense			Total
	(in thousands)
Assets:
Mortgage-backed securities at fair value	$	50,310		$	—	$	—		$	25,340		$	75,650
Loans acquired for sale at fair value		—			67,243		—			—			67,243
Loans at fair value		71,330			—		—			(511	)		70,819
Credit risk transfer strips		67,585			—		—			—			67,585
MSRs at fair value		—			—		(263,676	)		—			(263,676	)
	$	189,225		$	67,243	$	(263,676	)	$	24,829		$	17,621
Liabilities:
Interest-only security payable at fair value	$	(2,431	)	$	—	$	—		$	—		$	(2,431	)
Asset-backed financings at fair value		(64,151	)		—		—			1,138			(63,013	)
	$	(66,582	)	$	—	$	—		$	1,138		$	(65,444	)

	Nine months ended September 30, 2023
	Net gains (losses) on investments and financings			Net gains on loans acquired for sale			Net loan servicing fees			Net interest expense			Total
	(in thousands)
Assets:
Mortgage-backed securities at fair value	$	(127,434	)	$	—		$	—		$	(1,172	)	$	(128,606	)
Loans acquired for sale at fair value		—			(7,215	)		—			—			(7,215	)
Loans at fair value		(61,803	)		—			—			(6,212	)		(68,015	)
Credit risk transfer strips		104,130			—			—			—			104,130
MSRs at fair value		—			—			(64,515	)		—			(64,515	)
	$	(85,107	)	$	(7,215	)	$	(64,515	)	$	(7,384	)	$	(164,221	)
Liabilities:
Interest-only security payable at fair value	$	(6,363	)	$	—		$	—		$	—		$	(6,363	)
Asset-backed financings at fair value		66,108			—			—			666			66,774
	$	59,745		$	—		$	—		$	666		$	60,411

Financial Statement Item Measured at Fair Value on a Nonrecurring Basis

Following is a summary of the carrying value of assets that were remeasured during the period based on fair value on a nonrecurring basis:

Real estate acquired in settlement of loans	Level 1		Level 2		Level 3		Total
	(in thousands)
September 30, 2024	$	—	$	—	$	438	$	438
December 31, 2023	$	—	$	—	$	753	$	753

The following table summarizes the fair value changes recognized during the periods on assets held at period end that were remeasured at fair value on a nonrecurring basis:

	Quarter ended September 30,					Nine months ended September 30,
	2024		2023			2024		2023
	(in thousands)
Real estate acquired in settlement of loans	$	9	$	(258	)	$	105	$	(288	)

The Company remeasures its REO based on fair value when it evaluates the REO properties for impairment. The Company evaluates its REO for impairment with reference to the respective properties’ fair values less costs to sell. REO may be revalued after acquisition due to the Company receiving greater access to the property, the property being held for an extended period or receiving indications that the property’s fair value may not be supported by developing market conditions. Any subsequent change in fair value to a level that is less than or equal to the property’s cost is recognized in Results of real estate acquired in settlement of loans in the Company’s consolidated statements of income.

Fair Value of Financial Instruments Carried at Amortized Cost

Most of the Company’s borrowings are carried at amortized cost. The Company’s Assets sold under agreements to repurchase, Mortgage loan participation purchase and sale agreements, Notes payable secured by credit risk transfer and mortgage servicing assets and the Exchangeable Notes, defined in Note 15 – Long-Term Debt, are classified as “Level 3” fair value liabilities due to the Company’s reliance on unobservable inputs to estimate these instruments’ fair values. The Company classifies the 2028 Senior Notes, defined in Note 15 – Long-Term Debt, as “Level 2” fair value liabilities.

The Company has concluded that the fair values of these borrowings other than term notes and term loans included in Notes payable secured by credit risk transfer and mortgage servicing assets and the Unsecured senior notes approximate the agreements’ carrying values due to the borrowing agreements’ variable interest rates and short maturities.

The Company estimates the fair values of the term notes and term loans included in Notes payable secured by credit risk transfer and mortgage servicing assets using indications of fair value provided by nonaffiliate brokers for the term notes, internal estimates of fair value for the term loans, and pricing services for the Unsecured senior notes. The fair values and carrying values of these liabilities are summarized below:

	September 30, 2024				December 31, 2023
Instrument	Carrying value		Fair value		Carrying value		Fair value
	(in thousands)
Notes payable secured by credit risk transfer       and mortgage servicing assets	$	2,830,108	$	2,846,037	$	2,910,605	$	2,904,678
Unsecured senior notes	$	814,915	$	818,647	$	600,458	$	580,090

Valuation Governance

Most of the Company’s assets, its Asset-backed financings at fair value, Interest-only security payable at fair value and Derivative and credit risk transfer strip liabilities at fair value are carried at fair value with changes in fair value recognized in current period income. A substantial portion of these items are “Level 3” fair value assets and liabilities which require the use of unobservable inputs that are significant to the estimation of the fair values of the assets and liabilities. Unobservable inputs reflect the Company’s own judgments about the factors that market participants use in pricing an asset or liability and are based on the best information available under the circumstances.

Due to the difficulty in estimating the fair values of “Level 3” fair value assets and liabilities, the Company has assigned responsibility for estimating the fair values of these assets and liabilities to specialized staff within PFSI's capital markets group and subjects the valuation process to significant senior management oversight.

With respect to “Level 3” valuations other than IRLCs, the capital markets valuation staff reports to PFSI’s senior management valuation committee, which oversees the valuations. The capital markets valuation staff monitors the models used for valuation of the Company’s “Level 3” fair value assets and liabilities other than IRLCs, including the models’ performance versus actual results, and

reports those results to PFSI’s senior management valuation committee. PFSI’s senior management valuation committee includes the Company’s chief financial and investment officers as well as other senior members of PFSI’s finance, risk management and capital markets staffs.

The capital markets valuation staff is responsible for reporting to PFSI’s senior management valuation committee on the changes in the valuation of the non-IRLC “Level 3” fair value assets and liabilities, including major factors affecting the valuation and any changes in model methods and inputs. To assess the reasonableness of its valuations, the capital markets valuation staff presents an analysis of the effect on the valuation of changes to the significant inputs to the models and, for MSRs, comparisons of its estimates of fair value and key inputs to those procured from nonaffiliate brokers and published surveys.

The fair values of the Company’s IRLCs are developed by PFSI's capital markets risk management staff and are reviewed by its capital markets operations staff.

Valuation Techniques and Inputs

The following is a description of the techniques and inputs used in estimating the fair values of “Level 2” and “Level 3” fair value assets and liabilities:

Mortgage-Backed Securities

The Company’s categorization of its current holdings of MBS is based on whether the respective security is an IO security:

•The Company categorizes the majority of its current holdings of MBS, comprised of securities other than IO securities, as “Level 2” fair value assets. Fair value of these securities is established based on quoted market prices for the Company’s MBS holdings or similar securities.

•The Company categorizes its current holdings of IO securities as “Level 3” fair value assets. The Company uses a discounted cash flow approach to estimate the fair values of its IO securities.

The key inputs used in the estimation of the fair value of IO securities include pricing spread (discount rate) and prepayment speed. Significant changes to those inputs in isolation may result in significant changes in the IO securities' fair value measurements. Changes in these key inputs are not directly related.

Following are the key inputs used in determining the fair value of IO securities:

	September 30, 2024		December 31, 2023
Fair value (in thousands)	$	81,256	$	94,231
Key inputs (1)
Pricing spread (2)
Range	5.9% – 6.5%		5.1% – 5.1%
Weighted average	6.5%		5.1%
Annual total prepayment speed (3)
Range	11.7% – 12.1%		10.9% – 11.0%
Weighted average	11.7%		10.9%
Equivalent life (in years)
Range	4.4 – 6.8		4.7 – 7.2
Weighted average	6.7		7.1

(1)Weighted-average inputs are based on the UPB of the underlying loans.

(2)Pricing spread represents a margin that is applied to a reference forward rate to develop periodic discount rates. The Company uses the pricing spread over a derived United States Treasury Securities (“Treasury”) yield curve for the purpose of discounting cash flows relating to IO securities.

(3)Prepayment speed is measured using life total Conditional Prepayment Rate (“CPR”). Equivalent life is provided as supplementary information.

Changes in the fair value of MBS are included in Net gains (losses) on investments and financings in the consolidated statements of income.

Loans

Fair value of loans is estimated based on whether the loans are saleable into active markets:

•Loans that are saleable into active markets, comprised of most of the Company’s loans acquired for sale at fair value and all of the loans at fair value held in VIEs, are categorized as “Level 2” fair value assets:

•For loans acquired for sale, the fair values are established using the loans’ contracted selling prices, quoted market prices or market price equivalents.

•For the loans at fair value held in VIEs, the quoted indications of fair value of all of the individual securities issued by the securitization trusts are used to derive fair values for the loans. The Company obtains indications of fair value from nonaffiliate brokers based on comparable securities and/or pricing services and validates the brokers’ indications of fair value using pricing models and inputs the Company believes are similar to the pricing models and inputs used by other market participants. The Company adjusts the fair values received from brokers and/or pricing services to include the fair value of MSRs attributable to the loans included in the VIEs.

•Loans that are not saleable into active markets, comprised of home equity lines of credit, previously sold loans that the Company repurchased pursuant to the representation and warranties it provided to the purchaser and distressed loans, are categorized as “Level 3” fair value assets:

•Fair values for loans acquired for sale categorized as “Level 3” assets are estimated using a discounted cash flow approach or the loans' contracted selling prices when applicable. Inputs to the discounted cash flow model include current interest rates, payment statuses, property types, discount rates and forecasts of future interest rates, home prices, prepayment speeds, default speeds and loss severities.

•Distressed loans’ fair values are estimated based on the expected resolution from the individual asset’s disposition strategy. When a cash flow projection is used to estimate fair values, those cash flows are discounted at annual rates up to 20%.

Derivative and Credit Risk Transfer Strip Assets and Liabilities

CRT Derivatives

The Company categorizes CRT derivatives as “Level 3” fair value assets and liabilities. The fair values of CRT derivatives are based on indications of fair value provided to the Company by nonaffiliate brokers for the certificates representing the beneficial interests in the trusts holding the Deposits securing credit risk transfer arrangements pledged to creditors, the recourse obligations and the IO ownership interests. Together, the recourse obligation and the IO ownership interest comprise the CRT derivative. Fair values of the CRT derivatives are derived by deducting the balances of the Deposits securing credit risk transfer arrangements pledged to creditors from the fair values of the certificates.

The Company assesses the fair values it receives from nonaffiliate brokers using the discounted cash flow approach. The significant unobservable inputs used by the Company in its review and approval of the valuation of CRT derivatives are the discount rates, voluntary and involuntary prepayment speeds and the remaining loss expectations of the reference loans. Changes in fair value of CRT derivatives are included in Net gains (losses) on investments and financings in the consolidated statements of income.

Following is a quantitative summary of key unobservable inputs used in the Company’s review and approval of broker-provided fair values for CRT derivatives:

	September 30, 2024		December 31, 2023
	(dollars in thousands)
Fair value	$	29,690	$	16,160
UPB of loans in reference pools	$	5,071,449	$	5,437,551
Key inputs (1)
Discount rate
Range	8.4% - 11.7%		9.0% – 9.7%
Weighted average	8.7%		9.6%
Voluntary prepayment speed (2)
Range	6.8% - 7.1%		6.9% – 7.6%
Weighted average	7.1%		7.4%
Involuntary prepayment speed (3)
Range	0.1% - 0.1%		0.2% – 0.8%
Weighted average	0.1%		0.3%
Remaining loss expectation
Range	0.0% - 0.2%		0.2% – 0.3%
Weighted average	0.1%		0.3%

(1)Weighted average inputs are based on fair value amounts of the CRT arrangements, except for remaining loss expectation which is based on the UPB of the loans in the reference pools.

(2)Voluntary prepayment speed is measured using life voluntary CPR.

(3)Involuntary prepayment speed is measured using life involuntary CPR.

Interest Rate Lock Commitments

The Company categorizes IRLCs as “Level 3” fair value assets and liabilities. The Company estimates the fair values of IRLCs based on quoted Agency MBS prices, the probability that the loans will be purchased under the commitments (the “pull-through rate”) and the Company’s estimate of the fair values of the MSRs it expects to receive upon sale of the loans.

The significant unobservable inputs used in the fair value measurement of the Company’s IRLCs are the pull-through rates and the estimated MSRs attributed to the mortgage loans subject to the commitments. Significant changes in the pull-through rates or the MSR components of the IRLCs, in isolation, may result in a significant change in the IRLCs’ fair values. The financial effects of changes in these inputs are generally inversely correlated as increasing interest rates have a positive effect on the fair value of the MSR component of an IRLC’s fair value, but also increase the pull-through rate for the loan principal and interest payment cash flow component that has decreased in fair value. Changes in fair value of IRLCs are included in Net gains on loans acquired for sale in the consolidated statements of income.

Following is a quantitative summary of key unobservable inputs used in the valuation of IRLCs:

	September 30, 2024		December 31, 2023
Fair value (in thousands) (1)	$	5,902	$	7,532
Committed amount (in thousands)	$	2,062,088	$	874,017
Key inputs (2)
Pull-through rate
Range	52.1% - 99.0%		50.0% - 98.0%
Weighted average	87.3%		82.5%
MSR fair value expressed as
Servicing fee multiple
Range	2.0 - 8.2		1.7 - 6.5
Weighted average	5.3		4.6
Percentage of unpaid principal balance
Range	0.5% - 2.6%		0.4% - 2.4%
Weighted average	2.0%		1.7%

(1)For purposes of this table, IRLC asset and liability positions are shown net.

(2)Weighted-average inputs are based on the committed amounts.

Hedging Derivatives

Fair values of derivative financial instruments actively traded on exchanges are categorized by the Company as “Level 1” fair value assets and liabilities. Fair values of derivative financial instruments based on observable interest rates, volatilities and prices in the MBS or other markets are categorized by the Company as “Level 2” fair value assets and liabilities. Changes in the fair values of hedging derivatives are included in Net loan servicing fees – from nonaffiliates – Mortgage servicing rights hedging results, Net gains on loans acquired for sale, or Net gains (losses) on investments and financings, as applicable, in the consolidated statements of income.

Credit Risk Transfer Strips

The Company categorizes CRT strips as “Level 3” fair value liabilities. The fair values of CRT strips are based on indications of fair value provided to the Company by nonaffiliate brokers for the securities representing the beneficial interests in the trusts holding the Deposits securing credit risk transfer arrangements pledged to creditors, the IO ownership interests and the recourse obligations. Together, the IO ownership interest and the recourse obligation comprise the CRT strip.

Fair values of the CRT strips are derived by deducting the balance of the Deposits securing credit risk transfer arrangements pledged to creditors from the indications of fair value of the securities provided by the nonaffiliate brokers.

The Company assesses the indications of fair value it receives from nonaffiliate brokers using the discounted cash flow approach. The significant unobservable inputs used by the Company in its review and approval of the valuation of the CRT strips are the discount rates, voluntary and involuntary prepayment speeds and the remaining loss expectations of the reference loans. Changes in fair value of CRT strips are included in Net gains (losses) on investments and financings in the consolidated statements of income.

Following is a quantitative summary of key unobservable inputs used in the Company’s review and approval of the broker-provided fair values of the CRT strip liabilities:

	September 30, 2024		December 31, 2023
	(dollars in thousands)
Fair value	$	13,475	$	46,692
Unpaid principal balance of loans in the reference pools	$	16,636,716	$	17,714,679
Key inputs (1)
Discount rate
Range	6.9% - 8.7%		7.9% – 9.6%
Weighted average	8.4%		9.4%
Voluntary prepayment speed (2)
Range	7.3% - 7.4%		6.6% – 8.2%
Weighted average	7.3%		6.8%
Involuntary prepayment speed (3)
Range	0.1% - 0.2%		0.2% – 0.3%
Weighted average	0.1%		0.2%
Remaining loss expectation
Range	0.4% - 1.5%		0.5% – 1.6%
Weighted average	0.5%		0.6%

(1)Weighted average inputs are based on fair value amounts of the CRT arrangements, except for remaining loss expectation which is based on the UPB of the loans in the reference pools.

(2)Voluntary prepayment speed is measured using life voluntary CPR.

(3)Involuntary prepayment speed is measured using life involuntary CPR.

Mortgage Servicing Rights

The Company categorizes MSRs as “Level 3” fair value assets. The Company uses a discounted cash flow approach to estimate the fair values of MSRs. The fair values of MSRs are derived from the net positive cash flows associated with the servicing agreements. The Company receives a servicing fee based on the remaining UPB of the loans subject to the servicing agreements and generally has the right to receive other remuneration including various mortgagor-contracted fees such as late charges and collateral reconveyance charges, and is generally entitled to retain any placement fees earned on certain custodial funds held pending remittance of mortgagor principal, interest, tax and insurance payments.

The key inputs used in the estimation of the fair value of MSRs include the applicable pricing spreads, the prepayment speeds of the underlying loans, and the annual per-loan costs to service the loans, all of which are unobservable. Significant changes to any of those inputs in isolation could result in significant changes in the MSR fair value measurements. Changes in these key inputs are not directly related. Changes in the fair value of MSRs are included in Net loan servicing fees – From nonaffiliates – Change in fair value of mortgage servicing rights in the consolidated statements of income.

MSRs are generally subject to loss in fair value when prepayment speed expectations and experience increase, when returns required by market participants (pricing spreads) increase, or when annual per-loan costs of servicing increase. Reductions in the fair value of MSRs affect income primarily through recognition of the change in fair value.

Following are the key inputs used in determining the fair value of MSRs at the time of initial recognition:

	Quarter ended September 30,				Nine months ended September 30,
	2024		2023		2024		2023
MSRs recognized (in thousands)	$	87,588	$	58,560	$	159,456	$	249,925
Unpaid principal balance of underlying loans (in thousands)	$	5,130,285	$	3,052,557	$	9,203,814	$	13,458,182
Weighted average annual servicing fee rate (in basis points)	35		38		35		40
Key inputs (1)
Pricing spread (2)
Range	5.4% - 7.3%		5.5% – 8.5%		5.4% - 8.5%		5.5% – 8.8%
Weighted average	5.5%		5.5%		5.6%		5.8%
Prepayment speed (3)
Range	11.7% - 26.7%		10.1% – 22.7%		10.8% - 26.7%		10.1% – 22.7%
Weighted average	13.6%		11.3%		13.1%		12.3%
Equivalent average life (in years)
Range	3.5 – 6.4		3.2 - 7.2		3.4 – 7.2		2.8 - 7.2
Weighted average	6.3		7.1		6.5		6.8
Annual per-loan cost of servicing
Range	$68 – $87		$69 – $71		$68 – $87		$68 – $71
Weighted average	$68		$71		$69		$69

(1)Weighted average inputs are based on UPB of the underlying loans.

(2)The Company uses the pricing spread over a derived Treasury yield curve for the purpose of discounting cash flows relating to MSRs.

(3)Prepayment speed is measured using life total CPR, which includes both voluntary and involuntary prepayments. Equivalent average life is provided as supplementary information.

Following is a quantitative summary of key inputs used in the valuation of MSRs as of the dates presented, and the effect on the fair value from adverse changes in those inputs:

	September 30, 2024		December 31, 2023
Fair value (in thousands)	$	3,809,047	$	3,919,107
Unpaid principal balance of underlying loans (in thousands)	$	228,127,324	$	230,294,583
Weighted average annual servicing fee rate (in basis points)	28		28
Weighted average note interest rate	3.8%		3.7%
Key inputs (1)
Pricing spread (2)
Range	5.4% - 8.1%		5.5% – 8.5%
Weighted average	5.4%		5.5%
Effect on fair value (in thousands) of (3):
5% adverse change	$(46,966)		$(48,362)
10% adverse change	$(92,816)		$(95,575)
20% adverse change	$(181,313)		$(186,699)
Prepayment speed (4)
Range	7.4% - 18.8%		6.5% – 17.9%
Weighted average	7.5%		7.0%
Equivalent average life (in years)
Range	2.5 – 8.5		2.7 – 9.4
Weighted average	8.2		8.5
Effect on fair value (in thousands) of (3):
5% adverse change	$(57,286)		$(53,964)
10% adverse change	$(112,596)		$(106,144)
20% adverse change	$(217,698)		$(205,509)
Annual per-loan cost of servicing
Range	$68 – $89		$70 – $89
Weighted average	$68		$70
Effect on fair value (in thousands) of (3):
5% adverse change	$(16,607)		$(17,276)
10% adverse change	$(33,214)		$(34,551)
20% adverse change	$(66,428)		$(69,103)

(1)Weighted-average inputs are based on the UPBs of the underlying loans.

(2)The Company uses a pricing spread over a derived Treasury yield curve for the purpose of discounting cash flows relating to MSRs.

(3)These sensitivity analyses are limited in that they were performed as of a particular date; only account for the estimated effect of the movements in the indicated inputs; do not incorporate changes in those inputs in relation to other inputs; are subject to the accuracy of the models and inputs used; and do not incorporate other factors that would affect the Company’s overall financial performance in such events, including operational adjustments to account for changing circumstances. For these reasons, these analyses should not be viewed as earnings forecasts.

(4)Prepayment speed is measured using life total CPR, which includes both voluntary and involuntary prepayments. Equivalent average life is provided as supplementary information.

Real Estate Acquired in Settlement of Loans

REO is measured based on its fair value on a nonrecurring basis and is categorized as a “Level 3” fair value asset. Fair value of REO is established by using a current estimate of fair value from either a broker’s price opinion, a full appraisal, or the price given in a pending contract of sale.

REO fair values are reviewed by PLS staff appraisers when the Company obtains multiple indications of fair value and there is a significant difference between the indications of fair value. PLS staff appraisers will attempt to resolve the difference between the indications of fair value. In circumstances where the staff appraisers are not able to generate adequate data to support a fair value conclusion, the staff appraisers obtain an additional appraisal to determine fair value. Recognized changes in the fair value of REO are included in Results of real estate acquired in settlement of loans in the consolidated statements of income.